Underwriting Issues With Trusts

by Linda Ray

Financial agents and attorneys who help you put your investments into a trust must rely on the underwriting policies of the products they sell or manage. The underwriter is the company that issues the insurance policy or investment tool that you place in your trust. Underwriting rules and regulations change regularly and can involve issues and challenges for management of a trust account.

Transfers

The legal ownership of property is transferred to the named beneficiaries when you create a trust. Cars, real estate and other assets then are legally owned by the trust. At the same time, the insurance policies need to be restructured to make sure the assets are properly covered and that the trust beneficiaries receive sufficient insurance coverage. Issues surrounding the underwriting of assets held in trust can include whose name to put on the policy, what assets should be covered, and how best to protect the interests of new owners.

Names

Underwriters may leave the assets covered under the original owner or change the name on the insurance to reflect the new ownership. When the trust is named as the insured, many benefits of the insurance policy, such as coverage that extends to family members on an auto insurance policy, will not be available. Likewise, occupants of a house might not be covered if the insurance policy is issued in the name of a trust.

Additions

Leaving the insurance polices in the name of the trust and adding occupants or drivers on riders would provide sufficient coverage. But this would place a burden on the trust to provide such broad coverage that it often would extend to the named insured beyond the boundaries of the property. Instead, you may consider underwriting the insurance in the names of the occupants or drivers and naming the trust as an additional insured party. This restricts the insurance to cover only the property that the initial insurance policy covered.

Outside Interests

When you add your name as occupant of a property, the benefits refer only to the property where you reside. If the trust owns vacant property, or property rented to other people, the coverage would not extend to losses associated with that real estate. You might need to structure a number of new insurance policies to cover every possible contingency. These issues are less complicated for vehicle insurance underwriting. When a vehicle is listed as property of the trust, that vehicle and any persons involved are covered.

Defaults

When tax liens or judgments are taken out on a property under trust, that raises issues about writing a new insurance policy. The liens and judgments must be cleared before a new policy can be written. Transfers of deeds must be free and clear before new underwriting. At the same time, insurance companies may place restrictions on the policy based on the state of the title and deed ownership.

About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

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